Treasury taking final steps to avoid default

The Treasury Department has begun using the last set of accounting maneuvers at its disposal to allow the government to keep paying its bills until Congress raises the country’s borrowing limit, Treasury Secretary Jack Lew told congressional leaders Tuesday night.

In a letter, Lew reiterated that if the debt ceiling is not raised by Oct. 17 the government will not be able to meet all its financial commitments, such as making payments to U.S. debt holders, government contractors and Social Security recipients.

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Debt ceiling: By the numbers

“If we have insufficient cash on hand, it would be impossible for the United States of America to meet all of its obligations for the first time in our history,” he wrote. “For this reason, I respectfully urge Congress to act immediately to meet its responsibility by extending the nation’s borrowing authority.”

The Obama administration has said it will not negotiate over the debt ceiling, arguing Congress needs to act because the issue isn’t whether to approve new spending but whether the government should pay the bills it has already racked up.

But Republicans have made clear they will expect some sort of concession in exchange for voting to raise the debt ceiling.

That debate has yet to begin in earnest, however, as congressional leaders and the White House wrestle with the more immediate fiscal fight over funding the government.

On Tuesday, the government began a partial shutdown because Congress failed to enact legislation to keep the government funded. A deal to get agencies up and running remains elusive.

Lew said in his letter that the government shutdown — and the decrease in spending that comes with it — will not do much if anything to push off the Oct. 17 deadline, which is when Treasury estimates the government will run out of money to pay all its bills.

Economists, corporate executives and market analysts have warned that failing to raise the debt ceiling would pose a much greater risk to the government and financial markets than a government shutdown.

U.S. government securities are viewed as the safest assets in the world and therefore play a key role in financial markets. If the creditworthiness of the U.S. government is called into question, economists warn, it could lead to a financial panic and a severe economic downturn.

To buy more time before the debt limit needs to be raised, Lew said the final “extraordinary measures” being deployed include suspending the daily reinvestment of the portion of the Exchange Stabilization Fund that is invested in Treasury securities and that Treasury is entering into a debt swap with the Federal Financing Bank and the Civil Service Retirement and Disability Fund.